Islamic finance is emerging as an alternative source of finance in addressing the major development challenges faced by many Organization of Islamic Cooperation (OIC) countries. The global market for Islamic financial services, as measured by the total volume of Shariah compliant assets, is estimated to have reached US$ 1.1 trillion at end-2011. OIC countries, with a collective share of 98% in these assets, continue to be the main actors in the industry’s impressive growth story.
Recently, the global financial and economic crisis of 2008-09 has brought to the forefront a wide range of issues concerning the stability and soundness of the conventional financial system. This has prompted an extensive global re-examination by the international community on the adequacy of the existing international economic and financial architecture and the search for a more enduring solution. In the search for a new architecture, there was a general consensus on the need to restore the financial transactions to their basic function – to provide services that add value to the real economy. This, in fact, represents the very essence of Islamic finance, which can be traced back to the Shariah principles. However, concerns remain regarding the compatibility of Islamic financial principles with the conventional performance metrics. Whether socioeconomic goals like sustainability and poverty alleviation can be reconciled with the goals of profitability and market share is strongly challenged. Although certain Islamic products and practices have been lauded for their potential to advance socioeconomic development in OIC member countries, many still argue that the impact of Islamic finance on the development process has primarily been modest. Particularly the development of Islamic financial products has generally been limited to the re-engineering of the conventional products to meet Shariah requirements. All these factors have contributed to Islamic finance’s missing the opportunity during the recent financial turmoil to promote itself as a sound alternative to the conventional system, which was then on the brink of collapse. Moreover, the recent crisis has highlighted that the Islamic finance industry remains vulnerable to the similar systemic risks as its conventional counterpart, and its quest for achieving authenticity is still a challenging task.
In the light of these observations, the present report examines the contemporary trends in the Islamic finance industry in the OIC member countries and its inherent potential for developing into a mainstream financing alternative to the conventional interest-based system.
Online Electronic Version
Islamic Finance in OIC Member Countries (English)